Despite the fact that the cryptocurrency market is in the red, reports have revealed that traditional hedge funds continue to invest in digital assets. The number of such entities is estimated at 300.
More traditional hedge funds are moving into crypto
According to the 4th Annual Global Crypto Hedge Fund report by PricewaterhouseCooper (PwC), 89 hedge funds were involved in a survey conducted in Q1 2022.
Research revealed that 38% invested in cryptocurrency by traditional hedge funds, an increase of 21% from a year earlier. Two-thirds of those surveyed are currently investing in digital assets and plan to increase their allocation by 2022.
Brevan Howard, a British hedge fund giant, planned to invest 1.5% in various cryptocurrencies last April. An earlier survey in June 2021 showed that almost 100% of hedge funds plan to allocate 7.8% of their portfolios into crypto by 2026.
The number of traditional hedge fund managers who are not involved in such investments has fallen to 62% from 79% the year before. 29% of people who are not investing in digital assets are making plans or are at the end of their investment journeys.
PwC’s report on the contrary noted that there are 300 specialist crypto hedge funds worldwide, and added that new entities were created at a rapid rate over the past two-years.
Bitcoin was the most traded digital asset in crypto hedge funds. Ether came second, followed closely by Terra, Terra and Solana.
Crypto Investments are hampered by regulatory uncertainty
While traditional hedge funds are investing more in crypto, many still use caution. The survey found that 57% of respondents allocated less than 1% of their total assets under management to crypto.
41% of asset managers who have not invested in digital assets stated that they don’t expect to get such exposure within the next three year. The remaining 31% are interested in cryptocurrency, but prefer to wait until the market matures.
Respondents not engaged in crypto investment said regulatory uncertainty was their biggest obstacle, while hedge funds that have such exposure stated that lack of tax and regulatory clarity was a significant challenge.
John Garvey, Global Financial Services Leader at PwC United States, noted that while the crypto market has been volatile and carries risks, it has not stopped traditional hedge funds investing in crypto.
“The recent fall of Terra clearly demonstrated the risks associated with digital assets. Volatility will still exist, but the market is maturing. With that, there are many more crypto-focused hedge fund and higher AuM. However, traditional funds are also entering the crypto space.
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